Monday, December 15, 2008

Fed rates heading toward zero

It looks like a Japan-style trip to zero interest rates is in the cards for the US. We've been watching this scenario unfold for months now, and it looks like ZIRP is finally here.

MarketWatch has more on the upcoming Fed rate cuts:

"The Federal Reserve is likely to cut the federal funds rate as low as it can go at this week's meeting, and to begin shifting its focus to nontraditional policies.

"It would make the most sense for this meeting to be the last rate cut rather than dragging it out to the January meeting," wrote Chris Rupkey, chief financial economist at Bank of Tokyo Mitsubishi, adding that a "hallmark of the Bernanke Fed has been to move quickly and aggressively."

Rupkey's forecast calls for the Fed to cut rates by three-quarters of a percentage point to 0.25%. Most Wall Street firms expect a rate cut of a half point to .50%..."

Here are a few more details on the upcoming Fed meetings:

"...The two-day Fed meeting starts Monday afternoon. A statement on policy is expected at 2:15 p.m. Eastern time Tuesday.

Since the last Fed meeting, economic conditions have deteriorated, and many economic indicators have been setting multiyear lows.

The recession has turned into a global downturn, with similar weakness in Europe and Japan and many emerging economies.

The Fed meeting was originally set to last just one day, but an extra day was added to discuss various options for "quantitative easing" operations."

There's that term again: "quantitative easing". What exactly does this entail?

Regular readers of this blog may recall mention of this central bank policy in our "$6 trillion Fed balance sheet" post, as well as the December 5th, "Features of the Week". Please see these posts, and our related articles below, for more.

Related articles and posts:

1. Fed to cut rates again, maybe to zero - MarketWatch.

2. Fed to press rates toward zero - Reuters.

3. Zero rate world may lie ahead - Bloomberg.

4. Marc Faber: "Bernanke is a disaster" - Finance Trends.